AT&T; Breakdown Could Fuel Battle for Market Share
In recent months, American Telephone & Telegraph has tweaked its competitors with a series of ads showing rivals’ foul-ups in long-distance services. One ad shows an annoyed man sitting at his desk throwing cards on the floor while waiting for an AT&T; competitor to make a long-distance connection. In another, a caller trying to dial Philadelphia finds himself talking to someone in Fiji.
The ads stress AT&T;’s long record of reliability and imply that those problems are what happen when you put your fate in the hands of young upstarts.
But AT&T;’s long-distance breakdown on Monday--its worst system failure ever--makes it look like the bad guy that makes customers wait to reach Philadelphia. Analysts wondered how much more market share Ma Bell may lose to its charged-up rivals, noting that the breakdown will force many customers to seek linkups with backup carriers as a sort of insurance policy.
The debacle couldn’t have come at a worse time for AT&T;, which controls about two-thirds of the nation’s long-distance market. Its aggressive ads and stepped-up marketing in recent months had succeeded in significantly slowing the loss of market share to a slew of smaller competitors, analysts said.
A much humbled AT&T; spent the last two days apologizing and promising some token to soothe ill feelings--about which it will announce specific plans today. The company had said it would seek permission from the Federal Communications Commission to offer a day of discounted long-distance services, but sources said Wednesday that AT&T; was considering seeking permission to expand the discounts beyond one day.
Meanwhile, major competitors were pondering how hard they should kick the giant while it’s down.
“We’ve been handed an opportunity,” said Michael J. Furtney, director of corporate relations for US Sprint, which ran ads after Hurricane Hugo and the Bay Area earthquake capitalizing on some problems AT&T; had with broken lines and extremely heavy volume. This time, Sprint doesn’t have to stretch itself too much to respond, Furtney said. “All we have to do is raise our hand and say there is another alternative,” he added.
MCI Communications said it had no plans to change its marketing. “We’re already pretty aggressive,” said company spokesman Bernard Goodrich.
Analysts said the major benefit for AT&T;’s competitors is that the massive breakdown makes a compelling argument that no major business should depend on one long-distance company. “They can make the case that it is like having only one bridge into the city,” said Gregory Sawyers, an analyst with Sanford C. Bernstein & Co. in New York. Many companies are already using more than one service, he said. “This will accelerate the process,” he said.
Some analysts said AT&T;’s competitors should be cautious in how far they go in attacking AT&T.; If they make too much of the technical breakdown, “they could be setting themselves up,” said David J. Boczar, an analyst with New Japan Securities in New York. “It could happen to them,” he said.
The breakdown is by no means a fatal blow for AT&T;, analysts said. But it knocks the wind out of AT&T;’s boasts of technical superiority, they added. “What this may point out is that AT&T; has some of the same hardware and software problems as everybody else,” said Steven Kropper, program manager for International Data Corp., a technology market research firm.
While AT&T; may suffer short term, many analysts said the damage will be mitigated by two factors. “The key item to make note of is that AT&T; has a very strong track record,” said Paul Aran, an analyst with Bear, Stearns & Co. in New York.
Additionally, AT&T;’s management didn’t falter in the crisis. “I think they responded very well. They acknowledged the mistake, apologized and promise to try to make it up,” Sawyers said.
Analysts said AT&T;’s quick offer to provide restitution demonstrates a new level of aggressiveness at the company. For a time, AT&T; was not adverse to losing some market share, reasoning that it would stem tighter government regulation of the company, Boczar said.
“I think they feel comfortable with the current market share” and have moved aggressively to prevent erosion, he said.
AT&T; spokesman Walter Murphy said the company is reassessing specific ads, but any changes “will have no bearing” on the basic message of AT&T;’s reliability.
